Stock/Investment Vocabulary

Assets

resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide a future benefit. Assets are reported on a company's balance sheet and are bought or created to increase a firm's value or benefit the firm's operations.

Share-owner

any person, company, or institution that owns at least one share of a company's stock. As equity owners, shareholders are subject to capital gains (or losses) and/or dividend payments as residual claimants on a firm's profits.

Yield

1. The annual rate of return on an investment, expressed as a percentage. 2. For bonds and notes, the coupon rate divided by the market price. This is not an accurate measure of total return, since it does not factor in capital gains. 3. For securities, the annual dividends divided by the purchase price. This is not an accurate measure of total return, since it does not factor in capital gains. here, also called dividend yield or current yield. " Investing in companies with a large dividend is a popular strategy, but a more diversified approach generally does better in the long run, as growth is often more important than yield. "

Standard & Poor's 500

a stock market index that tracks the stocks of 500 large-cap U.S. companies. It represents the stock market's performance by reporting the risks and returns of the biggest companies. Investors use it as the benchmark of the overall market, to which all other investments are compared.

Net Worth

1. For a company, total assets minus total liabilities. Net worth is an important determinant of the value of a company, considering it is composed primarily of all the money that has been invested since its inception, as well as the retained earnings for the duration of its operation. Net worth can be used to determine creditworthiness because it gives a snapshot of the company's investment history. Also called owner's equity, shareholders' equity, or net assets. 2. For an individual, the value of a person's assets, including cash, minus all liabilities. The amount by which the individual's assets exceed their liabilities is considered the net worth of that person. Automated online tools, such as Personal Capital, can make net worth calculation and tracking an easy task. " John had a net worth of one million dollars and was able to obtain a loan twice that amount for a new house. As long as his other debts remain low, he will be able to make the payments. "

Portfolio

A collection of investments all owned by the same individual or organization. These investments often include stocks, which are investments in individual businesses; bonds, which are investments in debt that are designed to earn interest; and mutual funds, which are essentially pools of money from many investors that are invested by professionals or according to indices. " If you want to limit your risk and not have to worry about one bad thing ruining you then you need a diversified portfolio. "

NASDAQ

A computerized system established by the NASD to facilitate trading by providing broker/dealers with current bid and ask price quotes on over-the-counter stocks and some listed stocks. Unlike the Amex and the NYSE, the Nasdaq (once an acronym for the National Association of securities Dealers Automated Quotation system) does not have a physical trading floor that brings together buyers and sellers. Instead, all trading on the Nasdaq exchange is done over a network of computers and telephones. Also, the Nasdaq does not employ market specialists to buy unfilled orders like the NYSE does. " People from all around the world can buy and sell stocks online at any time of the day in the NASDAQ exchange. "

Bond

A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. The Federal government, states, cities, corporations, and many other types of institutions sell bonds. Generally, a bond is a promise to repay the principal along with interest (coupons) on a specified date (maturity). Some bonds do not pay interest, but all bonds require a repayment of principal. When an investor buys a bond, he/she becomes a creditor of the issuer. However, the buyer does not gain any kind of ownership rights to the issuer, unlike in the case of equities

401(k)

A defined contribution plan offered by a corporation to its employees, which allows employees to set aside tax-deferred income for retirement purposes, and in some cases employers will match their contribution dollar-for-dollar. Taking a distribution of the funds before a certain specified age will trigger a penalty tax. The name 401(k) comes from the IRS section describing the program. " Anyone who plans on retiring at any point in their life would be smart to set up a 401 plan so they are set at that point and forward. "

Pension Fund

A fund established by an employer to pay retirement benefits to employees

Prospectus

A legal document offering securities or mutual fund shares for sale, required by the Securities Act of 1933. It must explain the offer, including the terms, issuer, objectives (if mutual fund) or planned use of the money (if securities), historical financial statements, and other information that could help an individual decide whether the investment is appropriate for him/her. also called offering circular or circular. " You need to come up with a good prospectus for your project so that others can see all that you are seeing. "

Depression

A period during which business activity drops significantly. High unemployment rates and deflation often accompany a depression. " A lot of businesses owners experience times when business has its ups and downs during difficult times of its depression. "

Recession

A period of general economic decline; typically defined as a decline in GDP for two or more consecutive quarters. A recession is typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market. A recession is generally considered less severe than a depression, and if a recession continues long enough it is often then classified as a depression. There is no one obvious cause of a recession, although overall blame generally falls on the federal leadership, often either the President himself, the head of the Federal Reserve, or the entire administration. " Unfortunately due to the recession, our company was forced to make budget cuts that included layoffs and store closings just to stay in business. "

Diversification

A portfolio strategy designed to reduce exposure to risk by combining a variety of investments, such as stocks, bonds, and real estate, which are unlikely to all move in the same direction. The goal of diversification is to reduce the risk in a portfolio. Volatility is limited by the fact that not all asset classes or industries or individual companies move up and down in value at the same time or at the same rate. Diversification reduces both the upside and downside potential and allows for more consistent performance under a wide range of economic conditions.

Bear Market

A prolonged period in which investment prices fall, accompanied by widespread pessimism. If the period of falling stock prices is short and immediately follows a period of rising stock prices, it is instead called a correction. Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly. The most famous bear market in U.S. history was the Great Depression of the 1930s. The term "bear" has been used in a financial context since at least the early 18th century.

Bull Market

A prolonged period in which investment prices rise faster than their historical average. Bull markets can happen as a result of an economic recovery, an economic boom, or investor psychology. The longest and most famous bull market is the one that began in the early 1990s in which the U.S. equity markets grew at their fastest pace ever.

Balance Sheet

A quantitative summary of a company's financial condition at a specific point in time, including assets, liabilities and net worth. The first part of a balance sheet shows all the productive assets a company owns, and the second part shows all the financing methods (such as liabilities and shareholders' equity). also called statement of condition. " When I confronted our CEO about the health of our company, he assuaged my fears by showing me our assets and debts on our company's balance sheet. "

Ticker Symbol

A system of letters used to uniquely identify a stock or mutual fund. Symbols with up to three letters are used for stocks which are listed and trade on an exchange. Symbols with four letters are used for Nasdaq stocks. Symbols with five letters are used for Nasdaq stocks other than single issues of common stock. Symbols with five letters ending in X are used for mutual funds. " You should try and follow the ticker symbol if you are thinking about purchasing a new stock any time soon. "

Dividend

A taxable payment declared by a company's board of directors and given to its shareholders out of the company's current or retained earnings, usually quarterly. Dividends are usually given as cash (cash dividend), but they can also take the form of stock (stock dividend) or other property. Dividends provide an incentive to own stock in stable companies even if they are not experiencing much growth. Companies are not required to pay dividends. The companies that offer dividends are most often companies that have progressed beyond the growth phase, and no longer benefit sufficiently by reinvesting their profits, so they usually choose to pay them out to their shareholders. also called payout. " The company posted strong sales over the last fiscal year, leading them to vastly increase the dividend which it pays to its shareholders. "

Income Statement

An accounting of sales, expenses, and net profit for a given period. " I got my income statement today and was interested to know what it said and what the implications would be for us. "

Stock Exchange

An exchange on which shares of stock and common stock equivalents are bought and sold. Examples include the NYSE and the AMEX.

Split

An increase in the number of outstanding shares of a company's stock, such that proportionate equity of each shareholder remains the same

Broker

An individual or firm which acts as an intermediary between a buyer and seller, usually charging a commission. For securities and most other products, a license is required. " In the past, I would use a stock broker, but now I can purchase stocks online by myself and save money on the fees. "

Equities

An instrument that signifies an ownership position, or equity, in a corporation, and represents a claim on its proportionate share in the corporation's assets and profits. A person holding such an ownership in the company does not enjoy the highest claim on the company's earnings. Instead, an equity holder's claim is subordinated to creditor's claims, and the equity holder will only enjoy distributions from earnings after these higher priority claims are satisfied. also called equities or equity securities or corporate stock. Use equities in a sentence " When my company went bankrupt, my boss was frustrated because his position as an owner of the company's equities meant he would be further behind other creditors in line to get paid. "

Collateral

Assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default. also called security. " We assessed if there would be any collateral damage as a result of our actions the other day at the meeting. "

Preferred Stock

Capital stock which provides a specific dividend that is paid before any dividends are paid to common stock holders, and which takes precedence over common stock in the event of a liquidation. Like common stock, preferred stocks represent partial ownership in a company, although preferred stock shareholders do not enjoy any of the voting rights of common stockholders. Also unlike common stock, a preferred stock pays a fixed dividend that does not fluctuate, although the company does not have to pay this dividend if it lacks the financial ability to do so

Capital

Cash or goods used to generate income either by investing in a business or a different income property. 2. The net worth of a business; that is, the amount by which its assets exceed its liabilities. 3. The money, property, and other valuables which collectively represent the wealth of an individual or business.

CD

Certificate of Deposit. Short- or medium-term, interest-bearing, FDIC-insured debt instrument offered by banks and savings and loans. CDs offer higher rates of return than most comparable investments, in exchange for tying up invested money for the duration of the certificate's maturity. Money removed before maturity is subject to a penalty. CDs are low risk, low return investments, and are also known as "time deposits", because the account holder has agreed to keep the money in the account for a specified amount of time, anywhere from three months to six years. " You may want to invest in a CD that will not have a huge return but should be a very steady and safe investment. "

Dow Jones Industrial Average

DJIA. The most widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials. The 30 stocks are chosen by the editors of the Wall Street Journal (which is published by Dow Jones & Company), a practice that dates back to the beginning of the century. The Dow was officially started by Charles Dow in 1896, at which time it consisted of only 11 stocks. The Dow is computed using a price-weighted indexing system, rather than the more common market cap-weighted indexing system. " You should try and follow the dow jones industrial average so you know how the economy is doing at the time. "

Retained Earnings

Earnings not paid out as dividends but instead reinvested in the core business or used to pay off debt. On the balance sheet, retained earnings appear under shareholders' equity. also called earned surplus or accumulated earnings or unappropriated profit. " The company credited half of the sales of its new products to retained earnings in order to further enhance the product for its second version. "

IRA

Individual Retirement Account. A tax-deferred retirement account for an individual that permits individuals to set aside money each year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later (or earlier, with a 10% penalty). The exact amount depends on the year and your age. IRAs can be established at a bank, mutual fund, or brokerage. Only those who do not participate in a pension plan at work or who do participate and meet certain income guidelines can make deductible contributions to an IRA. All others can make contributions to an IRA on a non-deductible basis.

IPO

Initial Public Offering. The first sale of stock by a company to the public. Companies offering an IPO are sometimes new, young companies, or sometimes companies which have been around for many years but are finally deciding to go public. IPOs are often risky investments, but often have the potential for significant gains. IPOs are often used as a way for a young company to gain necessary market capital. " Although they had kept their doors tightly sealed for many, many years, they had finally decided to open up their market with an IPO. "

Odd Lot

Less than 100 shares of a stock; or less than 10 shares of a very thinly traded stock. Some brokerages charge higher commissions for such transactions (often 1/8 of a point per share, called the differential). also called broken lot or uneven lot. opposite of round lot. " You may want to only take on an odd lot at first before you get to deeply involved in that risk. "

Wall Street

Name for the financial district in lower Manhattan, New York City, and the street where the NYSE, AMEX and many banks and brokerages are located. Sometimes also used to refer to the investment community in general; here also called the Street. Of all the places I wanted to visit during my time in New York City, Wall Street was at the top of my short list.

SEC

Securities and Exchange Commission

Common Stock

Securities representing equity ownership in a corporation, providing voting rights, and entitling the holder to a share of the company's success through dividends and/or capital appreciation

Blue Chip

Stock of a large, national company with a solid record of stable earnings and/or dividend growth and a reputation for high quality management and/or products

Round Lot

The normal unit of trading of a security; 100 shares of stock or 5 bonds

Profit

The positive gain from an investment or business operation after subtracting for all expenses. opposite of loss.

Interest

The fee charged by a lender to a borrower for the use of borrowed money, usually expressed as an annual percentage of the principal; the rate is dependent upon the time value of money, the credit risk of the borrower, and the inflation rate. Here, interest per year divided by principal amount, expressed as a percentage. also called interest rate. " The interest rate was low enough that inflation was more of a factor in our purchasing power rather than the interest rate. "

Price/Earnings Ratio

The most common measure of how expensive a stock is. The P/E ratio is equal to a stock's market capitalization divided by its after-tax earnings over a 12-month period, usually the trailing period but occasionally the current or forward period. The value is the same whether the calculation is done for the whole company or on a per-share basis. For example, the P/E ratio of company A with a share price of $10 and earnings per share of $2 is 5. The higher the P/E ratio, the more the market is willing to pay for each dollar of annual earnings.

Par Value

The nominal dollar amount assigned to a security by the issuer. For an equity security, par value is usually a very small amount that bears no relationship to its market price, except for preferred stock, in which case par value is used to calculate dividend payments. For a debt security, par value is the amount repaid to the investor when the bond matures (usually, corporate bonds have a par value of $1000, municipal bonds $5000, and federal bonds $10,000). In the secondary market, a bond's price fluctuates with interest rates.

Liabilities

company's legal financial debts or obligations that arise during the course of business operations. ... Liabilities are settled over time through the transfer of economic benefits including money, goods, or services.

Over The Counter

refers to the process of how securities are traded for companies that are not listed on a formal exchange such as the New York Stock Exchange (NYSE). Securities that are traded over-the-counter are traded via a broker-dealer network as opposed to on a centralized exchange.